What’s going on at RMB?

2010-11-14 08:42

David Meades

Stellenbosch - What’s happening at Rand Merchant Bank Holdings, the company through which Remgro controls FirstRand?

More than seven months ago RMB Holdings [JSE:RMH] warned that is was busy with possible restructuring and it still has nothing to say, other than again warning shareholders that a prospective transaction could have a significant impact on RMBH’s share price.

For up to three years stories have done the rounds that Remgro’s two main partners in RMBH, GT Ferreira and Laurie Dippenaar, want to sell their stakes.

At the same time there are regularly stories about offshore banks gunning for South African banks and FirstRand, like Nedbank, is apparently one of the targets.

Another scenario raising its head every now and then is that the one way for Remgro and its two partners to reduce their involvement in the FirstRand group is to restructure RMBH as an independent specialised financial institution with no retail banking interests.

This would of course be easier if FirstRand first unbundled its non-banking interests.

First, this would unlock more value for shareholders and, second, it would make the eventual sale of FirstRand as a pure banking group easier.

Has this been the plan, one might reason that the first step would be the unbundling of Discovery (already done) and the second step the unbundling of the insurance interests at FirstRand’s wholly owned subsidiary, Momentum – which is also almost complete.

There was speculation as to whether RMBH’s latest cautionary announcement might have to do with the process of merging Momentum and Metropolitan Life (Metlife) in MMI, which in reality amounts to an unbundling of Momentum.

But this is highly unlikely, because the MMI deal has the biggest impact on FirstRand’s shares and all the details are already known.

In this regard Momentum will become part of Metlife in a type of reverse takeover and FirstRand shareholders will receive free new shares in the “new” Metlife. Momentum’s assets will then comprise more than 60% of the whole in the new entity. The total value of the new MMI is estimated at about R28bn.

At Metlife’s current value a value of up to R3 per FirstRand [JSE:FSR] share can be ascribed to the unbundled Momentum assets.

The regulatory conditions for the transaction have all been met, but the JSE is apparently still not satisfied with all its requirements, and everything is expected to be finalised by the end of the month.

Sentimental value

After this FirstRand will have FNB, a retail bank, WesBank, Rand Merchant Bank and a minority stake in OUTsurance. The latter is considering a separate listing, but nothing is known officially. RMBH owns 61.7% of OUTsurance.

Rand Merchant Bank is the specialised investment and merchant banking arm of FirstRand and is actually the original “parent” from which the mighty FirstRand has arisen.

It probably holds a great deal of sentimental value for Johann Rupert, who started the original Rand Merchant Bank in the 1980s and then brought in Ferreira and Dippenaar, as well as Paul Harris, to make their financial group part of Rand Merchant Bank, thus forming the foundation of the banking group that eventually bought First National Bank (FNB), as well as Southern Life from Anglo American, and combined them into FirstRand.

A new holding company called Rand Merchant Bank Holdings (RMBH) was then established to hold the FirstRand interests.

RMBH in turn owns 32.3% of FirstRand, 26.7% of Discovery, 61.7% of OUTsurance and almost 80% of RMB Structured Insurance.

After the unbundling of Momentum RMBH will also receive a solid stake in the new MMI.All that will then be required is for a foreign banking group to come and make a bid for the smaller FirstRand. One would then not be surprised that a prerequisite for such a deal would be a “reselling” of Rand Merchant Bank to RMBH.

Rupert and Remgro would naturally hold the reins in any large-scale restructuring – and then there is every chance that the new RMBH would receive global recognition.

Rupert’s most recent brainchild, Reinet in Luxembourg, which still owns 5% of British American Tobacco (BAT) – 80% of its assets – still has a small stake in the investment world through a share in the bankrupt Lehman Brothers.

Rupert is certainly experiencing pressure to do something with Reinet.

Ever since its creation, Reinet’s share price has done hardly anything compared with the growth of Remgro and Richemont, whose shareholders received free Reinet shares when Remgro and Richemont’s BAT shares were unbundled.